Europe naphtha to win over more petrochemical buyers from LPG

27 June 2013 14:47[Source: ICIS news]

LONDON (ICIS)--The European naphtha market may soon win over more petrochemical buyers from the liquefied petroleum gas (LPG) sector, as the price spread between the two feedstocks remained narrow for the third week in a row, industry sources said on Thursday.

A spread of around $60/tonne (€78/tonne) for July spot cargoes was heard on Thursday, compared with $125/tonne on Friday 7 June, reducing the pull towards cheaper feedstock LPG.

A major petrochemical buyer in Europe said: “Certainly some petchem guys have switched to naphtha. Not all of them [have, as] they all have different economics.”

The feedstocks are used to produce ethylene, propylene and other widely-used petrochemicals in Europe.

The naphtha-LPG spread has been volatile over the past three weeks, but is narrower than in early June. The price gap was $68/tonne on 14 June, before it increased to $75/tonne last week.

The volatility over the past three weeks had held petrochemical buyers back from switching to naphtha sooner, a naphtha trader said.

“I think they have made slight adjustments, but the volatility in propane probably makes them reluctant to switch too much too early,” a naphtha trader said.

A closing price gap provides buyers with the choice to switch to the normally more expensive naphtha without compromising on margins.

On 21 June, ICIS analysis of downstream ethylene margins revealed LPG-based margins have lost their premium over naphtha-based margins, and lag behind by more than €60/tonne ($78/tonne), compared with a €9/tonne premium over naphtha-based margins the previous week.